Mortgage forbearance continues to be a hot topic in the housing sphere as industry organizations and Senate legislators have pushed back against federal government inaction on addressing servicing liquidity.
Further calls for government measures were raised after Mark Calabria, director of the Federal Housing Finance Agency (FHFA), stated earlier this week that there are no plans to establish a liquidity facility backed by the federal government. Calabria’s comments came even though the Trump administration has been urged by many to launch such a facility amidst the deluge of forbearance requests spurred by the COVID-19 pandemic.
So far, some government agencies have been proactive in addressing servicers’ liquidity concerns. Last month, for example, Ginnie Mae announced that a program is coming to help servicers cover upcoming payments to mortgage-backed securities (MBS) investors. That announcement was widely met with praise, although many industry groups also hoped that the FHFA would implement a similar mechanism to help servicers of loans backed by the government-sponsored enterprises.
One of those groups was the Mortgage Bankers Association (MBA), which co-signed an explicit call for a liquidity facility earlier this week. Now, with Calabria overtly saying that no program is in the works, MBA President Robert Broeksmit has responded with a critical statement.
“The FHFA Director’s recent statements send a troubling message to borrowers, lenders, and the mortgage market,” said Broeksmit. “Servicers are required to offer borrowers widespread forbearance under a plan devised and approved first by FHFA and then codified by the CARES (Coronavirus Aid, Relief, and Economic Security) Act. Fannie Mae and Freddie Mac are contractually obligated for the payments to investors. Since Fannie Mae and Freddie Mac will eventually reimburse mortgage servicers for the payments they must advance during forbearance, Director Calabria should advocate for the creation of a liquidity facility at the Fed to ensure the stability of the housing finance market.”
Broeksmit and the MBA also took issue with remarks Calabria made alluding to a potentially improved borrower experience when switching from a smaller servicer to “more reputable larger players” — remarks that could be seen as implicitly derogatory toward small institutions. Calabria made the comments while expressing confidence that those “larger players” have the capacity to absorb additional servicing if smaller lenders struggle.
“We also strongly disagree with his characterization of the customer experience as it relates to the size of a mortgage servicer,” Broeksmit said. “Millions of Americans are well-served by their local independent mortgage bank, community bank or credit union, and many chose to obtain their mortgage from those institutions for that precise reason. In the director’s own words, ‘Fannie and Freddie were created to provide small lenders, community banks, and credit unions with access to the market.’ We urge the director to follow that principle in responding to this crisis.”
Meanwhile, pushback against Calabria’s stance also came from Capitol Hill, with a bipartisan group of seven senators penning their own letter to Treasury Secretary Steve Mnuchin.
Led by Virginia Democrat Mark Warner, the senators asserted in the letter that immediate aid should be given to nonbank servicers, whose potential failure due to lack of liquidity could trigger vast negative repercussions across the housing landscape.
“Given that we could see as much as $100 billion in mortgage payments forborne through [the CARES Act], it presents an existential threat to these companies, and thus to the broader mortgage market. … The institutions that normally provide servicers with their liquidity will be unwilling to provide this unprecedented level of support, at least at a rate that many servicers could possibly afford. This will leave many servicers with no way to cover the growing obligations,” the senators wrote.
Since the need to create more liquidity was driven by the CARES Act’s “entirely appropriate, but extraordinary, requirement to provide widespread forbearance,” the senators argued that steps must be taken to safeguard the survival of the servicers who must bear the load.
Like the MBA, the senators were likewise skeptical of Calabria’s view that it was just a “small minority of firms” that were “experiencing stress.”
“At best,” the senators said, “we are disabling a large swath of previously healthy lenders at the worst possible time.
“At worst, we may be risking a downward spiral.”
In addition to Warner, the letter was signed by Tim Kaine, D-Va.; Bob Menendez, D-N.J.; Jerry Moran, R-Kan.; Mike Rounds, R-S.D.; Tim Scott, R-S.C.; and Thom Tillis, R-N.C.